Emerging Trends in Real Estate® Europe 2006 - Urban Land Institute

without being pan-European.”
Exhibit 1-8 Cross-Border Real Estate Investment Activity by Country
50%
40%
30%
20%
10%
0%
Source: Jones Lang LaSalle.
a degree of standardisation has crept in among the big law
firms that has somewhat reduced the time and expense
involved. Documentation is now often done in English with
an Anglo-Saxon model for leases. However, a pan-European
portfolio remains a much more expensive beast to assemble
than its single-country equivalent. For many, the level of
expense and complexity is daunting—and this is assuming
that you have somehow managed to obtain the assets.
For the majority of investors, a local office or a local partner
is still needed if one is to have any hope of success in
accessing product, even in core markets. As to markets outside
the core, “they remain fragmented and lack transparency,
which is a huge barrier to doing business unless you partner
with someone local.” “Real estate is, and always will be, a
local business.” “You have to team up with a long-term local
partner who knows the hidden rules.” Ironically, as cross-border
investment grows, so does demand for trustworthy expert
locals, and the difficulty in finding or retaining them is frequently
mentioned. Some local experts who used to work as
operating partners with international investors are becoming
fund managers themselves as they see more lucrative opportunities
to capitalise on their expertise through going it alone
with their own fund.
Indirect Investment Gets
Growing Pains
■ 2000 ■ 2001
■ 2002 ■ 2003
■ 2004 ■ 1H 2005
U.K. France Sweden C.E.E. Spain Netherlands Italy Germany Belgium Finland
The financial and human resources, critical mass, and local
expertise required for pan-European investment continue to
push a significant number of those who wish to diversify
across borders into indirect investment. Both listed funds and
private vehicles continue to multiply and attract new adherents.
They are available in every style, sector, and geographical
region. Some are diversified and others are specialised.
Investing indirectly neatly circumvents many of the obstacles
faced by those who wish to go cross-border, making them the
preferred route for all but the largest institutions. However,
they are not without their problems at present.
The number of investors now wishing to get into funds
has created a veritable logjam that is likely to persist well
beyond 2006. Many of the vehicle managers we interviewed
said that they had long waiting lists to get into their funds
even after accepting double the amounts they had initially
hoped to attract. “People are now deliberately oversubscribing
for funds because they know they’re going to be cut back.”
“Raising money isn’t the problem—investing it is the problem.”
“Not everyone who has raised money will be able to get
it all in the market.” More than one client institution admitted,
“We assume a certain percentage of the funds in these
vehicles will never get invested.”
The difficulty of getting money into the market has possibly
been responsible for fewer (albeit larger) funds being
launched during the first three quarters of 2005, according to
INREV. This is a considerable change from the past eight
years in which relentless growth in the number of new funds
was witnessed in the INREV universe. Another change in
trend is occurring in fees. These had previously been declining
for several years due to competitive pressures, but fees are
now on the rise as experienced fund managers capitalise on
increasing demand for their services. Of course, “track record
is what you pay for and it is by far the most important factor
in fund selection.” Also, under current market conditions
Emerging Trends in Real Estate ® Europe 2006 9